Perpetual Innovation

Category: deficit

  • Wisdom for Kids from Warren Buffet. Even the Gov might understand.

    Warren Buffet had these pearls of wisdom to share with Kids:

    1. Never spend more than you have.
    2. Save for the unexpected
    3. Never borrow without a payback plan

    I like it. Short. Sweet. Accurate. Simple… Sustainable even.

    So simple even a caveman could understand it.

    I’m thinking that we need to transmit this repeatedly up to our friends in the Federal Government (and maybe even to the States).

    Never spend more than you have. Boy do we break this rule. And we have broken it so long that it somehow seems normal. Over decades, there has only been a couple years during the Clinton era that we haven’t run an annual deficit. Of course, debt builds over time (unless you go bankrupt).

    Make no doubt about it, there are any number of things that will make our current level of borrowing infinitely worse than it is right now. Slower, lower or negative economic growth. Interest and inflation could sink us based on the percentage of government revenues that goes to interest on the debt (debt-servicing). On average we are probably paying about 1% interest on government debt, and that represents about 9-10% of the government revenues. (I hate to use the word revenues for the intake of taxes, let’s call it government inflows.)

    Sooo, if interest rates go up to 10% that would mean that almost all of the gov inflows would immediately become outflows to service the debt.

    That brings us to #2, save for the unexpected. Ops. Didn’t do that, did we!

    That brings us to #3, never borrow without a payback plan. Ops. Didn’t do that, did we!

    Now we are in a sequester situation. That is a lot like your parents cutting off your credit cards. . . Painful. Not very sophisticated. Only partially effective. Lot’s of side effects.

    And that is our after-the-fact payback plan? It’s not even a plan; it was the trap door contingency that legislators came up with for the unlikely event that they couldn’t come up with a plan.

    Keywords: Sustainable and non-sustainable (gov) spending, deficit, interest, payback, funding, budgeting.
    (See vECOcity.BlogSpot.com.)

  • US’s looming Federal Debt crisis as described by Dave Cote of Honeywell.

    US’s looming Federal Debt crisis has to be addressed, and soon. Maybe not before the end of this week when the Federal government might shut down without a 2011 budget allocation. But soon.

    Check out this video for the Committee for Economic Development: http://www.youtube.com/watch?v=-1DKIg2CcLk  (5min)

    Or we can delay and let the debt market and the IMF help use with austerity decision.

    My favorite, always is the national debt clock: http://www.usdebtclock.org/

    Any comments on its accuracy are welcome. Seem pretty accurate though. When the Federal government has already spent all the money it gathered for Social Security and Medicare and the Baby Boomers all start to retire and start to require that money… It’s gonna get ugly. Very ugly:-(

    The question is how soon and how quickly we can start to dig ourselves out the hole we’re in. Cote suggests both tax increases and spending cuts. For sure we have to get the 10% growth rate per year in SS & Medical expenses under central. But ever since “W” Bush we have cut taxes and increased spending. That was before we got into a recession and decided to stimulus-spend our way out of it… Only at the Federal government can that make any sense.